A federal judge in Texas has pressed pause on the state’s latest bid to rein in the use of environmental, social and governance considerations in corporate proxy advice, dealing a setback to lawmakers in Austin and Attorney General Ken Paxton.
On Friday, Judge Alan Albright of the Western District granted a preliminary injunction against Senate Bill 2337, a measure due to take effect on September 1. The ruling followed a lawsuit brought by Institutional Shareholder Services (ISS) and Glass Lewis, the two largest proxy advisory firms in the US.
Albright found the legislation unconstitutional on multiple fronts: preempted by federal pension law, in violation of the First Amendment and “void for vagueness.” In his words, “S.B. 2337 discriminates based on viewpoint when it subjects certain viewpoints to rigorous regulation but not their counterpoints. Worse, it compels private speakers to adopt and parrot the government’s viewpoint on hotly contested topics.”
The contested law would have required proxy advisers working with companies headquartered, incorporated or re-domesticating in Texas to disclose when ESG or diversity, equity and inclusion factors informed their recommendations. In practice, this meant forcing firms to stigmatise considerations that—under ERISA—fiduciaries may be obliged to weigh. Albright noted the law “disrupts nationally uniform administration” of pension plans by discouraging the very analysis they are meant to provide.
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ISS welcomed the decision. “ISS helps our institutional investor clients make informed decisions on behalf of the funds they steward,” a spokesperson said. “We provide our clients with rigorous, fact-based analysis based on the client’s direction, so that they can make their own voting decisions.”
Glass Lewis echoed that sentiment, adding it “appreciates the court’s thorough consideration of our arguments and is pleased with its decision to grant our motion for a preliminary injunction.”
The ruling ensures the law cannot be enforced while the case proceeds, though an appeal appears likely. For now, the judgment signals a judicial reluctance to allow states to dictate how proxy advisers frame their analysis—particularly when it touches on politically charged ESG issues.
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